Data from the World Gold Council show that the total amount of gold reserves held by central banks of various countries has exceeded 36,000 tons for the first time since 1990. Prior to this increase, the bank’s reported asset holdings had increased by 4,500 tons in the past ten years.
A fall in the dollar is good for gold
As of September 2021, the gold reserves held by central banks of various countries have increased to a new high of 36,000 tons for the first time since 1990. According to the World Gold Council (WGC), the central bank’s gold holdings increased to 31 institutions after successfully adding 4,500 tons of precious metals in the past decade, setting a new annual high.
in a Report The WGC released by Nikkei Asia attributed the growing preference of central banks for gold to the depreciation of the U.S. dollar. The report explains how the Fed’s sharp easing of monetary policy has led to an increase in the supply of U.S. dollars. According to the report, the increase in the supply of U.S. dollars has in turn caused the value of U.S. dollars to gold to fall sharply over the past decade.
To support the theory that the central bank is increasingly choosing gold, the report points to Poland, which is believed to have purchased about 100 tons of gold in 2019. Regarding the purchase of gold by the National Bank of Poland (NBP), there are reports citing Adam Glapinski, president of the agency, as saying that precious metals are not directly connected to the economy of any country, which makes it able to withstand the turmoil in the global market.
Gold has no counterparty risk
In addition to being relatively unaffected by drastic changes in financial markets, gold is generally considered to be free of credit and counterparty risks. According to the report, this is one of the reasons why Hungary has increased its gold reserves to more than 90 tons.
The report also shows that central banks in emerging economies are also working to limit or reduce their dependence on the U.S. dollar. In addition, these central banks are building up their gold reserves to limit their respective economies’ exposure to devalued currencies.
Before 2009, many central banks tended to use the proceeds from gold sales to increase their holdings of dollar-denominated assets, such as U.S. Treasuries. However, the report said that the 2008 financial crisis led to the outflow of US Treasury bonds and the decline in US dollar confidence.
As shown by the World Gold Council’s September data, gold has once again become a tool used by the central bank to protect its assets.
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